When trading The Wheel Options Strategy you only want to trade options on stocks that you want to own, otherwise you could be stuck in a very bad position.
So how exactly do you research stocks for options trading? Which websites do you use to check for news on the underlying stock that you want to choose for trading The Wheel? Should you choose Yahoo Finance, Seeking Alpha, Market Watch, or Benzinga?
How exactly can you know whether you should trade the stock or not? Well, that’s exactly what we’re going to talk about in this article.
I also want to also give you four very specific examples from stocks that popped up on the Wheel Scanner so that you know exactly what I’m doing.
Only Sell Puts On Stocks You’re Okay With Owning
The Wheel Strategy is a trading strategy that I use to trade my own accounts. The important thing is that you only trade with stocks that you DO want to own.
One of my team members made this meme:
“Rule #1 of The Wheel Club: Don’t sell puts on stocks you don’t want to own” courtesy of Photoshop.
Anyhow, let’s talk about this.
How Do I Know If I Want To Own The Stock?
Let’s take a look at a few stocks that recently came upon the Wheel Scanner.
The first one that I want to show you is Robinhood (HOOD), which came up with various strike prices at which you could sell puts. For example, a strike price of 37, and that actually doesn’t look too bad if you look at the chart.
The key question is, do you want to own Robinhood? Here is what I like to do.
Where do you check if there is any news that could be affecting Robinhood? The absolute easiest way is the good old trusted Google.
All I do is type in is “hood stock,” and after I hit “search,” this is where we are going to the “News” tab. Now you see the news for HOOD from different outlets.
You can see articles and posts from websites like Investor’s Business Daily, The Motley Fool, Yahoo! Finance, and CNBC, these will give you an idea of what is happening here right now.
For example, there’s an article from CNBC. It says “Robinhood Tanks after the SEC chair tells Barron’s that his payment for order flow, banning payment for order flow is a possibility.”
This is where it’s super important when you’re trading a stock like this and Robinhood that you do some research. As you know, Robinhood is heavily, heavily, heavily relying on payment for order flow.
What do you think will happen when it is banned and there’s no more source of revenue for this?
I mean, that’s obviously not good for the stock. So this is why it is important, instead of just looking at the chart, that you also check the news.
There are a few other news articles that say exactly the same thing. Motley Fool says, “Could Robinhood lose its main source of revenue?” and this lets you know to stay away from this stock.
This stock did show up on the PowerX Optimizer using the Wheel Scanner, so just looking at the the Wheel Scanner and at the chart is not enough. You need to check some underlying news.
Let me give you a few more examples of stocks that popped up on my scanner.
NVAX, as you can see, there is a lot of premium available here. Why is this? What is it about NVAX that gives us a lot of premium?
I mean, look at these strike prices here. This is from a daily chart, And if you’re looking at the strike price, we are looking at strike prices of around 200.
The drop in percentage right now could drop 14 percent and you would still collect a lot of premium.
So you have to wonder what is happening here. Why is there so much premium left? Do you really want to own the stock even at a strike price of 200?
Let’s go back to our good old trusted Google. All we need to do is type in “NVAX stock.”
If you have been following me for a while then you probably have heard me talking about NVAX, because NVAX is also developing a covid vaccine.
They haven’t been approved yet, and there are other vaccines that have been. The other vaccines did not only get emergency approval or authorization, they got full approval and NVAX here, apparently late to the game.
Here we see, “Novavax will enter the Covid-19 vaccine race with a bang.” I’m not so sure. There’s another article titled, “Why Novavax Stock Is Slipping Again Today.” You get the idea here.
For me personally, this is too much of a gamble. And you see that other options traders are thinking the exact same thing, and this is why there is so much premium.
Now, let me just give you two more examples that popped on the scanner.
The next example is support.com. Warning sign: Whenever you see that this is lighting up like a Christmas tree here, and you see all of this is orange, orange is a warning when it pops up on the scanner.
And hey, by the way, if you’re absolutely new to this strategy and you have no clue what The Wheel Trading Strategy is, or what this scanner is that I’m using here, you can check out a playlist of videos explaining this strategy in detail HERE.
So orange is a warning sign, and you see also the drop in percent. I mean, this thing could drop another 53 percent. Here we’re looking at strike prices of 9 or 8.
This is where often I see that traders are getting blinded by these high premiums and they think “Oh, my gosh, I can make so much money with this stock,” but then they get blinded by the premium and they’re getting stuck with the stock.
Why is support.com providing so much premium? This is where our good old trusted Google will help us out. Let’s search “SPRT stock” and go to “News.”
Here you see that there’s apparently a merger happening. What does this mean? Greenidge Holdings announced an update on merger closing.
This is interesting, this Greenidge Generation Holdings is a crypto company. You might be wondering why they want to merge and what’s happening there. This is a big warning sign.
Some mergers are obvious, some mergers make a lot of sense. This here, to me, does not make sense, and you see, you don’t really have to do a lot of research.
So why should you go to very specific sites if Google pretty much tells you the whole story already?
Let’s take a look at one more example, KWEB. KWEB is Krane Shares Trusts, China Internet.
Again, some orange here, a warning sign. Also, this is a China Internet ETF. Now, I don’t know about you, if you’re watching my stock market update morning streams, then you know what is going on in China.
Let’s go to our good old trusted Google and type “investing in China stock” and see what comes up.
Not good. Articles titled “Should I buy Chinese stocks?” or articles talking about how they’re being regulated come up, and this, you may have heard, is crazy of what has been going on there.
Let me show you a few charts and then you’ll get a better idea of why you should stay away from them.
Let’s start with the Chinese education company, EDU, New Oriental Education Group.
A while back the Chinese government said, “You know what, all education companies should become nonprofit companies,” and as you can see, this stock plummeted from $7 to right now trading at around $2 with basically no hope of recovery at all.
So stay away from Chinese stocks.
Here are a few other ones that we can take a quick look at, for example, Alibaba (BABA).
Today down two percent, and this is after China basically said they they were breaking up Alipay, or were at least thinking about it.
Another one, Tencent, TME.
TME also tanked after the Chinese government basically said that they will limit online games.
Where do we go with this? The idea here is when you research stocks, which are the best websites?
For me, the best website is Google News, because Google News aggregates all of the news websites.
And here’s the good thing about Google News:
Google ranks authority sites the highest. This way you can be sure that you are not falling for any of the scam sites that are trying to hype up stocks.
So usually you will see results from Barrons, The New York Times, CNBC. Very, very reputable resources.
This is how you research stocks for the Wheel. Hope that this helps.
If you would like to know how I personally trade these crazy markets, then here are 2 videos for you. One of them is explaining the “PowerX Strategy“, and the other one is explaining “The Wheel Strategy” in detail.
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